Theme: savings are not the same as investment.
What is savings
Where to keep savings
What savings is not
Why you save
Paradigm
Shift
What is savings
What is left of your paycheck after expenses is savings.
Where to put savings
Savings should be put in tax-free financial instruments with capital guarantees (which do not have the risk of losing value). There are 2 types of capital guaranteed instruments: those for current needs (e.g. Savings accounts, chequing accounts) and those for long term needs (Guaranteed Interest Certificates, Bonds, Life insurance policy cash values,etc).
What savings is not
Savings is NOT investment. Investing means putting capital AT RISK in exchange for the chance of making a bigger return than your savings are making. To summarize: Savings are not at risk but investments are at risk.
Why you save
Long Term Savings are used to pay for items that are too big to pay for out of one paycheck. Long term savings finances every big ticket item you buy (e.g. Your car, your house). Long term savings also finances retirement.
What consumer debt does to kill long term savings.
Why is my mailbox full of offers to lend me money via credit cards, mortgages, etc? Not out of the kindness of the banks' hearts, but because these things are profitable for them. I applaud their business skill but I do want to make sure that I only do things that are beneficial to me and to the ones I love.
What a bank does is finance the purchase of items for you so that you will give your long term savings to them. Get it into your head. Your long term savings is a zero sum game: either you or the bank will make money off the finance of your car or home.
Q: How do you recapture the interest you'd otherwise be paying the bank, and turn it into savings that grow tax free?
A: Sinking funds. (next: sinking funds)
Wednesday, August 23, 2006
Sunday, August 20, 2006
Par Policies: Savings rather than investments
It's important to realize that putting money in a par policy is saving, rather than investing in the true sense, because the capital is not at risk. It is closer to saving in a GIC.
While it is true that a participating policy dividend is not guaranteed, Great West and London Life have not missed a dividend in a hundred years, including wartime and depression. More importantly though, once a policy dividend is declared, it IS guaranteed not to lose value, unlike an equity or even a bond.
The reason that par policy dividends have been able to return 2 points over GICs on any given year in the last 100 years is:
While it is true that a participating policy dividend is not guaranteed, Great West and London Life have not missed a dividend in a hundred years, including wartime and depression. More importantly though, once a policy dividend is declared, it IS guaranteed not to lose value, unlike an equity or even a bond.
The reason that par policy dividends have been able to return 2 points over GICs on any given year in the last 100 years is:
- it has a small equity component that may provide growth. That being said, Great West's equity position is very small relative to many pension funds (e.g. CPP has 40% in equities: Great West life's participating fund has 10%, the average participating fund has a maximum of 20% in equities)
- it can smooth its results over 10-15 years. Gains and losses need not be immediatey recognized. If interest rates decline, for example, the gains on the long bond portfolio are not paid out immediately. Investment dispositions are rather laddered.
- people are living longer, so policies are paying out later than expected
- operating costs are reducing
- a small percentage is not distributed immediately and is instead used as a contingency fund to smooth results in case of a bad year.
Saturday, August 19, 2006
Nelson Nash and RRSPs
"When government creates a problem (onerous taxation), and then grants you an exception to the problem they created (ed. note: RRSPs) aren't you just a little bit suspicious that you are being manipulated? If they really wanted to help you all they had to do was lower taxes. But they don;t want to do that: they want to manage your life. How do you get around it? The logical solution is free contract with other free people. And that's all life insurance is."
Thursday, August 17, 2006
I get it now.
Whew. Finally got the USP for my financial planning business. I am working towards a Jan 15 2007 launch date for the business which so far is to be called newworldfinancial.ca.
I founded New World Financial (NWF) in November 2005 with the intention of targetting new immigrants to the Greater Toronto Area. I later expanded this to include anyone with financial dealings in Canada and one other country (from my point of view the services to be delivered to the target markets are identical.). The strategy at first was primarily Customer Intimacy and secondarily Low Cost Provider: to do something client-centered for the Philippine-Canadian community in the GTA, and keep things low-cost by outsourcing most lead generation to my call centre in Manila and fulfillment to London Life (my Financial Services Provider). Then the idea was to franchise the systems and sell coaching to planners whose natural markets were the other major ethnic communities - Chinese, Indian, Italian, Hispanic, and Eastern European.
Life is what happens while you're making other plans, says John Lennon. True to form, as we began selling financial planning services to the general population, I began to realize that the ethnic affinity micro-niche strategy was making money, but the differentiation was insufficient. In multi-cultural Toronto, most sales professionals use ethnicity as a differentiator - they just didn't market the benefit like we did at NWF. I didn't mind at first that our image tended to put off Anglo-Saxons, the majority ethnic group in Toronto, but some of my Anglo friends did so I did a rethink of the whole USP and worked on providing something more compelling and which did not exclude large bunches of the population outright.
So I began looking for a product/service differentiator to headline our marketing campaigns, and to use the ethnic affinity card to help sub-agents in their lead generation instead of putting it up front and centre of our strategy. That way I could get Anglo and French sub-agents selling our Unique Sales Proposition side by side with the other ethnic sub-agents without losing the "downtrodden minority" pitch to the smaller ethnic communities.
Small business is a whole different kettle of fish from the corporate world. A small business owner like myself cannot create systems - he doesn't have the time or the resources. I had to scour the environment for a turn-key USP I could re-engineer for the GTA market. And I am happy to say I have found it!
New World Financial's Unique Selling Proposition:
New World Financial is Canada's Authority on the PYF! System for converting bank interest and tax payments into savings.
The Personal Savings Rate in Canada was an abysmal 1.6% in the Firt Quarter 2006. But what is really alarming about that is how much in tax and interest payments (around 30% respectively) Canadians are paying without even questioning whether there is a better way.
The PAY YOURSELF FIRST! System increases the money going into a consumer's Personal Savings by taking cash from the interest and tax payments the consumer is already making. Most Financial Planners tell their clients what to do with their 1.6%: a PYF! Advisor tells clients what to do with their 60% and the 1.6%.
What a PYF! Advisor does when a client visits our office.
I founded New World Financial (NWF) in November 2005 with the intention of targetting new immigrants to the Greater Toronto Area. I later expanded this to include anyone with financial dealings in Canada and one other country (from my point of view the services to be delivered to the target markets are identical.). The strategy at first was primarily Customer Intimacy and secondarily Low Cost Provider: to do something client-centered for the Philippine-Canadian community in the GTA, and keep things low-cost by outsourcing most lead generation to my call centre in Manila and fulfillment to London Life (my Financial Services Provider). Then the idea was to franchise the systems and sell coaching to planners whose natural markets were the other major ethnic communities - Chinese, Indian, Italian, Hispanic, and Eastern European.
Life is what happens while you're making other plans, says John Lennon. True to form, as we began selling financial planning services to the general population, I began to realize that the ethnic affinity micro-niche strategy was making money, but the differentiation was insufficient. In multi-cultural Toronto, most sales professionals use ethnicity as a differentiator - they just didn't market the benefit like we did at NWF. I didn't mind at first that our image tended to put off Anglo-Saxons, the majority ethnic group in Toronto, but some of my Anglo friends did so I did a rethink of the whole USP and worked on providing something more compelling and which did not exclude large bunches of the population outright.
So I began looking for a product/service differentiator to headline our marketing campaigns, and to use the ethnic affinity card to help sub-agents in their lead generation instead of putting it up front and centre of our strategy. That way I could get Anglo and French sub-agents selling our Unique Sales Proposition side by side with the other ethnic sub-agents without losing the "downtrodden minority" pitch to the smaller ethnic communities.
Small business is a whole different kettle of fish from the corporate world. A small business owner like myself cannot create systems - he doesn't have the time or the resources. I had to scour the environment for a turn-key USP I could re-engineer for the GTA market. And I am happy to say I have found it!
New World Financial's Unique Selling Proposition:
New World Financial is Canada's Authority on the PYF! System for converting bank interest and tax payments into savings.
The Personal Savings Rate in Canada was an abysmal 1.6% in the Firt Quarter 2006. But what is really alarming about that is how much in tax and interest payments (around 30% respectively) Canadians are paying without even questioning whether there is a better way.
The PAY YOURSELF FIRST! System increases the money going into a consumer's Personal Savings by taking cash from the interest and tax payments the consumer is already making. Most Financial Planners tell their clients what to do with their 1.6%: a PYF! Advisor tells clients what to do with their 60% and the 1.6%.
What a PYF! Advisor does when a client visits our office.
- Explains PYF! goals and benefits to the client in easy-to-understand, non-financial language.
- Interviews the client to estimates how much of a client's paycheck is going to tax and interest.
- Uses PYF! methodology to determine goals to convert those payments into savings
- Explains in easy-to-understand, non-financial language what the client needs to do to make it work
- Reviews implementation yearly.
Monday, August 14, 2006
Weekend Takeaways
Marketing systems
Bill Good marketing sytems another good alternative to PMI
Excluded Dicaprio and Jeff paul because of bad net reviews.
Need to add to my operations manual:
- Marketing/publicity/press release, bio, faq (Paul Hartunian)
- HR/ Hiring an assistant (Pamela Yellen)
- Marketing/internet/affiliate programs (Corey Rudl)
Bill Good marketing sytems another good alternative to PMI
Excluded Dicaprio and Jeff paul because of bad net reviews.
Need to add to my operations manual:
- Marketing/publicity/press release, bio, faq (Paul Hartunian)
- HR/ Hiring an assistant (Pamela Yellen)
- Marketing/internet/affiliate programs (Corey Rudl)
Back to school
After Canadian labour day (yes in Canada you add the u), kids go back to school and parents get back to work.
So what have I got done this summer? July 19 was the first anniversary of my Financial Planning business. And let me tell you, Small Business is not for the faint hearted. Small Business is all about one thing: being able to draw cash out of the business. So foremost on my mind is efficiently generating cash flow in, and keeping expenses down.
Sounds like what they teach you at Kellogg, and Schulich, where I graduated right? Wrong. I got a generic theoretical grounding in all the business disciplines, so I am part of a privileged few that can talk about B School in the past. But small business is about identifying a community with a need, finding what fills the need from the public domain, adapting it to the business asap, and feeding that need continuously.
The need I fill is protecting Torontonians' hard earned money from the two biggest thieves: the CRA and the banking system. When I got here in 2001 on assignment for Swiss Reinsurance Company, my eyes goggled at how complacent the natives were about paying 50% of the cash they earned to the government in income and consumption taxes, and another 30% to the banking system in interest. Canada Statistics has the 2006 1Q Canadian personal savings rate at 1.6% (not a typo). Thi is better than the negative personal savings figure of our southerly neighbours, but a lot worse then the WHOPPING 10-20% of the Japanese. So let me get this straight - the Japanese, who are in a recession, are going to retire 5 times richer than us Canadians, who are experiencing a booming economy?
Great, I have an entire nation of people who are interested in what I have to sell. More next time.
So what have I got done this summer? July 19 was the first anniversary of my Financial Planning business. And let me tell you, Small Business is not for the faint hearted. Small Business is all about one thing: being able to draw cash out of the business. So foremost on my mind is efficiently generating cash flow in, and keeping expenses down.
Sounds like what they teach you at Kellogg, and Schulich, where I graduated right? Wrong. I got a generic theoretical grounding in all the business disciplines, so I am part of a privileged few that can talk about B School in the past. But small business is about identifying a community with a need, finding what fills the need from the public domain, adapting it to the business asap, and feeding that need continuously.
The need I fill is protecting Torontonians' hard earned money from the two biggest thieves: the CRA and the banking system. When I got here in 2001 on assignment for Swiss Reinsurance Company, my eyes goggled at how complacent the natives were about paying 50% of the cash they earned to the government in income and consumption taxes, and another 30% to the banking system in interest. Canada Statistics has the 2006 1Q Canadian personal savings rate at 1.6% (not a typo). Thi is better than the negative personal savings figure of our southerly neighbours, but a lot worse then the WHOPPING 10-20% of the Japanese. So let me get this straight - the Japanese, who are in a recession, are going to retire 5 times richer than us Canadians, who are experiencing a booming economy?
Great, I have an entire nation of people who are interested in what I have to sell. More next time.
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